Every year in December I write to all my friends and past clients to give them my predictions about Real Estate coming into a New Year. I usually include things about interest rates, new construction, business moving into Santa Clarita and other issues that affect value. More than anything else though people want to know if the value of their home will go up or down. Sometimes it is pretty easy to predict, lately it has been incredibly hard. Lets start with the basics and then get into an issue that has become by far the biggest question mark in Real Estate-”Shadow Inventory”. As I have recently reported, we currently have the lowest amount of inventory that I have ever seen in 19 years of selling Real Estate. In a Valley of over 200,000 people we have UNDER 500 homes for sale. New listings in the lower price ranges are often met with multiple offers. If we weren’t hearing every day about unemployment, rising notice of defaults, appraisal challenges, and coming off of the most sobering correction in Real Estate history, prices would be going up. So as we head into 2010, I will say here what I share every day with my clients:
1.Prices under $450,000 are stable and/or going up. There is a tremendous lack of inventory and huge demand for new listings.
2.Prices between $450,000 and $650,000 are stable in Stevenson Ranch, Valencia, Saugus and most of Castaic and Newhall. Less so in Canyon Country. Newer homes typically have more demand than older-no big surprise there.
3. Prices over $650,000 are not yet stable in most parts of our Valley and will REALLY be affected if there is a significant increase in foreclosure supply as there is not as much demand in this price point as there is in the lower ranges. It is completely opposite-especially over 1 million-than the lower price ranges.
Fairly straightforward, right? In a “normal” market I would likely be predicting a very strong 2010 with increases in most homes under $500,000. Ah, but this isn’t normal! Not with Government intervention, short sales priced wherever the agent wants, foreclosures selling without ample time on the market to allow free market bidding, “investors” soliciting me for my short sale listing so they can buy them under market and plenty of other garbage that should not be happening. Even more concerning is the over one million homes nationwide that have been in default that MAY come on the market. How many? When? How? This is so critical to pricing and yet so unclear that even experts completely disagree. See what I mean? HARD to predict. Let’s try to keep it simple.
Let me start by saying that I have spent a lot of time in the last 18 months at great conferences, compared notes with other top agents and met with experts from Fannie Mae, Freddie Mac, FHA, Bank of America, Wells Fargo, Chase and anyone else that should have insight on this topic. My questions are: “Where are all of the houses for sale that the public records tell us are dafaulted?”. “Why are there so many people living in homes for months (and years!), without making a payment?” Why hasn’t it been taken back by the Bank? Why are Fannie and Freddie now RENTING back the home to the people they just foreclosed on? If you follow this “shadow inventory” question, you know that there are plenty of conspiracy theories-the banks are waiting for prices to rise, the banks are waiting for the governmant to bail them out, the banks are using mark to market accounting and don’t want to show just how bad their balance sheets really are. There are a few others and some or all of this may have some basis in truth. Here though is what we KNOW to be true;
1. The Government REALLY does not want more foreclosures. They have forced the Banks (and by Banks I mean lenders and servicers), to stop foreclosure proceedings and forced them to do anything possible to modify loans and keep people in their homes. They have endorsed Fannie and Freddie’s rent back policies. Again, they REALLY do not want more foreclosures.
2. Because default becomes a matter of public record, analysts can show just over one million homes that are in some stage of foreclosure, from over 90 days to over a year, that have not been taken back by the banks. Again, there are theories as to why but the math does show 2 groups that together add up to about this number. First there are just over half a million homes that were delayed by the moratoriums that are now being processed because they do not qualify for loan modification or they are vacant. This process started this summer and most experts will tell you that just the processing time alone is about 90 days, longer if occupied. Combine that with the almost 600,000 loans that were modified by Presidential order under the HAMP program and we see where the homes are. So the moratoriums ended at the exact same time that the Government REQUIRED the top 10 servicers to do 500,000 loan mods by November1, a goal that was exceeded. According to many, the sheer man power alone to do this made it impossible. Most people in the know suggest that we will see the foreclosure numbers come back SLOWLY as the huge task of moratorium, modification, and possible foreclosure processing occurs. As such, expect the foreclosures to be spread out over a much longer time frame, which the Government very much wants. Better for price stability, better for buyers and sellers, though not because of some perfectly calculated effort just the overwhelming amount of work and time involved.
3. Finally, nowhere close to the one million homes will come on the market as foreclosures because the Government has also told the lenders that if people don’t qualify for a loan modification, or do a loan mod and fall back into foreclosure they want to see SHORT SALES. In fact, it is likely that we will see the Government offer financial incentives to sellers and the lenders to go this route. Also discussed has been turning around the process in a much shorter time frame and making all short sales basically non recourse-no having the seller sign promissary notes or other demands that have made them fall apart in the past. If these things happen, and most expect they will-look out. Short sales will dominate resales in areas like Santa Clarita for the next 3-5 years as upside down sellers use them to get right side up.
So this big number of “maybe” listings sits out there leading to further uncertainty and until they are absorbed expect a market like this one for years. Prices won’t go up a lot, but they won’t go down a lot either. As such, I have committed myself to try to be part of the solution in a new way-helping anyone that needs it to stay in their homes. We will have free seminars starting in January here at my conference room for those needing direction on loan modification or the right way to do a short sale. In April we will offer free sales information and applications to reduce property taxes. Most importantly though we have to self police as agents and homeowners, the unregulated short sale process currently occuring. Over 60% of the listings in our Valley are short sales, many that don’t “smell” right. We simply must end this “Wild Wild West” way of listing short sales well below market value and then convincing the lender that it is market value. Short sales should have multiple offers due to lack of inventory and they should be open to competitive bidding just like “normal” sales. Police your neighborhoods and if something looks wrong, call the agent on it. Incentives should be put in place for homeowners (currently getting nothing out of a short sale) to sell as high as the market will allow. The irony of all the fraud and mismanagement that occured with prices going up is the same thing is happening to cause them to go down because of an unscrupulous or ignorant few. There is a right way and a wrong way and the only way to have stability and transparency is with rules on short sales that often do not exist. I am tired of seeing homes go off the market in one day at $100,000 below what it could sell for, and it happens all the time. If we can eliminate this then next years update will not be nearly as hard to predict.
Posted by nealweichel 